Our Perspectives

How are all countries, rich and poor, to define poverty?

In Rwanda, a woman works in her tailoring shop. The World Bank recently updated the absolute poverty line to US$1.90 a day, reflecting changes in the average price of the goods and services people require in 15 developing countries, including Rwanda. Photo: Alice Kayibanda/UNDP Rwanda

As of 1 January 2016, countries, like big vessels, will begin sailing towards this new development north from different harbors. But how will they calibrate their ‘navigation instruments’ to set their course?

The 2030 Agenda is clear in this respect. Paragraph 55 reads: ‘[…] Targets are defined as aspirational and global, with each Government setting its own national targets guided by the global level of ambition but taking into account national circumstances.’

First and foremost, countries, both rich and poor, will need poverty lines (not all countries have one) to set targets and measure progress towards this goal. Countries have different options and these largely depend on their respective level of development:

Absolute poverty lines (option 1), including the recently updated World Bank global poverty line of US$1.90/day, are widely used by developing countries, since large portions of their populations count on a limited number of goods to meet their basic needs. Middle and high income countries may also chose to adopt absolute poverty lines – as is the case of the United States. These, however, need to be ‘socially relevant’, where it is commonly understood that their calculation (on the basis of a bundle of food and non-food goods) represents the absolute minimum below which livelihood and inclusion are not possible in that particular country and social context.

As income level rises, countries may opt to use relative poverty lines (option 2). Relative poverty lines are defined in relation to the overall distribution of income in a country – they are set as a share (usually between 40 and 60 percent) of the country’s mean income. As such, they are more suitable to measure poverty in middle and high income countries.

In prosperous societies, poverty is generally assessed vis-à-vis the standard of living of society as a whole, whereby people are considered poor relative to the wealth of others and if they cannot meaningfully participate in that society because of lack of resources. Relative poverty lines implicitly assume that the cost of social inclusion increases proportionally with the income of society. A number of countries, particularly in Europe, have adopted relative poverty lines.

A third option available to countries is the subjective poverty line, which is set on the basis of what people perceive as the minimum income (or consumption) that a person, or household, needs in a specific society to not be considered poor. Subjective poverty lines come from perception surveys and are not widely used.

In choosing any one of these options, it is important to pay close attention to how absolute and relative poverty lines behave over time and what they tell about poverty. While absolute poverty lines are not frequently revised, relative poverty lines change with variations in the distribution of income. For example, growth which equi-proportionally increases consumption across all sections of society but does not address inequality may leave relative poverty unchanged.

The use of one or the other has clear policy implications.

With equality and poverty eradication at the core of the 2030 agenda, should countries – rich and poor – consider adopting a combination of absolute and relative poverty lines?